Will you receive the FULL new Pension?

Many retiring after 2016 won't get full new pension

Right form the outset, the Government have acknowledged that many retiring after 2016 would not get the full new pension because deductions would be made for any periods spent “contracted out” of the second state pension.

You could be effected because you contracted out

Being “contracted out” means savings that would have gone into the second state pension have instead been invested into either a company or personal pension.

It is impossible to calculate how much anyone would be penalised since the Government declined to disclose the formula that would be used.

More transparency is needed

David Smith, pensions expert at Tilney Bestinvest, said: “We are getting lots of calls from people who have received their state pension forecast and are shocked. We need far more transparency about what is going on here, and how the deductions are calculated.”

How is the state pension changing?

The current state pension system is vastly complex and many people end up failing to claim vital benefits and credits.

At the moment, savers with 30 years of National Insurance (NI) contributions can receive a basic state pension of £115.95 a week.

Those in higher paid jobs can build up a second state pension (previously called SERPS : State Earnings-Related Pension Scheme).

Those on lower incomes can claim extra credits, and there is a boost for those with savings, too.

But from April 2016

But from April 2016, everyone with 35 years' worth of full-rate NI contributions will no less than £151.25 per week. The actual amount will be set in autumn 2015.

There will be no more credits and no more benefits.

If all this wasn't confusing enough, the changes have been coupled with a shake-up to the state pension age.

Women's pension age, which is currently 62, is already creeping up. By 2018, men and women will have the same retirement age of 65.

Between 2018 and 2020, the Government then plans to increase the state pension age for men and women to 66 and it will eventually rise to 67.

How your new State Pension is calculated

1. In April 2016 DWP will assess your “foundation amount” on which your future pension accrual will build. This will be the highest amount you qualify for either under the old or new system.

2. Under the old system, 30 years' NI contributions will qualify you for a basic state pension, currently £115.95; with any earnings-linked pension added on top. Under the new system, 35 years' NI contributions will qualify for a full-level state pension of around £155 weekly.

3. But deductions will be made under both the new and the old system for any period contracted out of the state earnings-linked top-up known as Serps or S2P. These deductions will be based on the notional GMP you would have been entitled to when you contracted out of the state system, and could be applied across your career.

4. After 2016, if you continue working you will add £4.24 weekly (rising in line with the increase in the pension) for each year worked to your state pension entitlement.

5. The value of the state pension is guaranteed to rise in line with either earnings, inflation or 2.5pc, whichever is the highest.

Deferring new State Pension

When you reach State Pension age, you don't need to stop working or claim your State Pension immediately. You can defer claiming your State Pension. If you put off claiming, you could get extra State Pension which would be paid as a regular amount when you claim.

How to check your National Insurance record

You can ask for a national insurance statement online to check if you have gaps in your National Insurance record. You'll need to say which years you want your statement to cover.